Dropshipping is an innovative retail fulfillment method whereby the business owner does not have to keep the inventory physically. This form of business is conducted online as there is no need to rent a premises to conduct the business from. When the seller sells the product, he purchases it from a third party. In this case, a third party can be another retailer or wholesaler. The third party will then ship the product to the client.
In this form of business, the seller or the dealer is known as a dropshipper. The dropshipper will act as a storefront or middleman to ensure all the transactions have been made. Clients will always approach the dropshipper to place their order. Once the client makes an order, the dropshipper will charge the supplier some amount for that particular sale they have made. The dropshipper will end up making huge profits without necessarily handling the inventory. This definition will help answer the question, what is dropshipping?
With this are the parties involved in drop shipping.
- Wholesalers. Wholesalers will buy the commodities from the manufacturers and later sell them to retailers. They normally stock a wide variety of products from innumerable manufacturers.
- Manufactures. Manufacturers are involved in the creation of commodities. They normally sell in bulk to retailers and wholesalers.
- Retailers. Retailers sell commodities to clients.
Once the client has placed an order, the dropshipper will alert the suppliers to package and ship the commodity to the client. Dropshipping works in this manner.
Some of the benefits of dropshipping
- Low overhead
With drop shipping, you will not be required to have your premises on where you will be running the business from. You will not incur the cost of holding and controlling inventory. The seller will be required to have a laptop and strong internet connectivity. It is a great way of cutting down operational costs.
This form of business is associated with flexibility, as you can operate the business anywhere. Internet connectivity will make it much easier to conduct business from any location. If you can easily communicate with the suppliers, you can run the business from any locality.
A dropshipper can easily scale as the order fulfilment process does not rely on the size of the geographical region and the number of personnel required to ship the order. It can greatly help retailers experiencing fluctuating sales due to seasonal factors.
- Wide product variety
Dropshipping will help open more product opportunities. Retailers and wholesalers can provide a wide range of products. The dropshipper does not have to incur the cost of storing the inventory and the store manager.
In conclusion, dropshipping is a wide business model. This article has helped break down the basic concepts one has to know about dropshipping. One has to be aware of the parties involved in dropshipping before venturing into this business. You also have to be aware of the benefits of dropshipping and its limitations.